Book Buiding to Get Apartments

[MIRepublic]

The Tower is peanuts, in terms of constructing financing, compared to the deal for the Westin B-C.

[cman710]

I hope that Ferchill can pull everything together to accomplish this project. I think that Ferchill is probably looking at this in the long-term. Having an occupied Book Tower and Building increases the value of the Book-Cadillac area, and opens up further room for development. In that sense, I am happy to see that Ferchill appears to have an investment in the Washington Blvd. area.

[Lorax]

Without getting into the weeds on this, and with all due respect to my fellow posters, rarely is it less expensive to demolish and replace a building then it is to renovate whatever shell of a building is still standing.

If that were the case, then the remainder of Detroit's historic structures would have been leveled years ago. Detroit largely missed the last two building booms, with people opting to either fix and restore what they had, or leave for the suburbs, where look-alike, cheaply built office parks became the new headquarters of many formerly Detroit based corporations.

What is missing in the discussion here are the historic tax credits, which can only be used on existing historic buildings, obviously, and not on new construction. This alone will incentivize renovation before new construction, as is evident in how our skyline looks today, with the majority of the buildings built no later than the 1960's.

The argument that we are paying for historic tax credits is also a misnomer, since these buildings are tax-neutral to begin with, many having been off the tax rolls for decades. Extending credits, or abatements does nothing to harm the existing tax structure.

Then there is the added benefit of preserving the built environment, which only adds to the value of the city's building stock, whereas any new construction, unless it is a greater and higher use of the property does nothing measurable to add to the value of the built environment, and in most cases Detroit has lost historic structures in recent years to money-generating parking lots, [[the Madison Lenox and Monroe Block) among others, which I think we can all agree is a lesser use of the properties in question.

Hudson's building was replaced with a bland, suburban office block and an unfinished subterranean parking garage with nothing on top of it. This is a prime example of extreme waste of perhaps the most important building as it related to the everyday lives of Detroiters, and was certainly a low point in the city's history. Not to mention the ripping out of needed massing to anchor a large retail street, lower Wooward, which now makes much less sense.

If anything, with the state of the economy, currently, historic preservation will make even greater sense going forward, and may indeed be the best thing to happen to Detroit's fine stock of older buildings.

[R8RBOB]

What is missing in the discussion here are the historic tax credits, which can only be used on existing historic buildings, obviously, and not on new construction. This alone will incentivize renovation before new construction, as is evident in how our skyline looks today, with the majority of the buildings built no later than the 1960's.

The argument that we are paying for historic tax credits is also a misnomer, since these buildings are tax-neutral to begin with, many having been off the tax rolls for decades. Extending credits, or abatements does nothing to harm the existing tax structure.

Ah, my old friend. Has it been this long since we went back and forth? I have to say that everything you said was on the money. I agree with you but I quoted your tax credits comment for a reason.

Manuel Moroun has owned the Michigan Central Depot for years and has not raised a checkbook to renovate the building and surrounding property. Surely he benefitted from all those tax credits that you keep commented on. I am sure he is not the only one who has benefitted from Detroit's historic tax credits. Mike and Marian Ilitch comes to mind but the point is using tax credits to get billionaires to buy up old ruins in Detroit has been done for decades. They have sat on the property and done NOTHING. The problem is not enough of these billionaires are doing enough to restore the ruins.

To be fair, some of these property owners have come up with "pie in the sky" ideas on what do with property in downtown. For example ex-mayor Kilpatrick tried to give Moroun an out when he suggested to move police hdqrs to the MCD. The idea was more reaching than realistic because the MCD is an industrial setting not a location for a police station.

Now if this Ferchill wants to invest to renovate the Book, great. Hopefully more like him will step up to rescue the ruins. But this talk about tax credits is too much seeing that Detroit is losing its tax base.

[dcmorrison12]

So, give this forum a ballpark figure as to how much it would cost to rehab the Book Tower. Can they get their money out of it knowing that Detroit's economy will be in the toilet for years to come?

News flash, it won't be just detroit - the whole state

[Gistok]

Great insight all...

But I do have one question... it was in response to 3WC's lengthy detailed response on why he doesn't believe that the Book will be restored...

I understand that Historic Tax Credits are literally public money. That goes for federal and state Historic Tax Credits. But that begs the question... if Detroit doesn't take advantage of the available pots of tax credit monies, then others will. I mean if we don't restore another historic building in Detroit, then that will make more federal money available for other cities to restore their old buildings.

Ditto for state Historic Tax Credit money. If Detroit doesn't use it's sizeable fair share, the that will make more available for other towns such as Lansing, Grand Rapids, Flint, Saginaw, Ann Arbor, etc...

Because Detroit has such a large number of surviving historic structures, isn't it fair that we should maximize our tax credit potential in helping to fix up large sections of downtown?

Like highway transportation dollars... either we use our share... or someone else will. Am I right here?

Either we pay for these credits in our own backyard.... or we're going to pay anyway in someone elses backyard.

If this logic is correct, I know which choice I'd rather make....

[artds]

Great news. Just getting the exterior of that building cleaned up will make the skyline a lot more pleasant to look at.

[Lorax]

Imagine the Book Tower with it's facade cleaned to a gleaming buff color, much as the Book Cadillac looks today, with it's lights on, and the tower illuminated at night.

Back when it was built, the giant stone urns you see visible at the base of the roofline uplight the tower at night. Louis Kamper definitely had a flair for the dramatic, and what endears this building to me above most others is the apparent learning curve Kamper was going through at the time he was commissioned to design it.

It's been noted that he was embarrased at the sheer vertical nature of skyscrapers, and felt the need to embellish it with heavy duty stone carving, and top it with a mansard roof. His classical training was bound and determined to assert itself on what should have been a much more streamlined structure.

No doubt his inspiration were the baroque palaces of Dresden and Vienna, and in America it is truly unique, since it's most similar sister, the Singer Building in New York, was demolished in the 1960's. We are lucky to have the Book Tower still standing, and it needs a little respect now.

[heedus]

Do you think a facelift of the Book Tower would include removing that hideous fire escape? Either way, just giving that building a good power washing would be an amazing change.

[rb336]

thanks for the info. i love mansard roofs, probably one reason it is my #2 D building

[Novine]

"You being an old guy, you know, YOU KNOW that if it cheaper to build anew rather than renovate you and everyone who is watching the books is going to take the former and not the latter."

Not true and with historic tax credits, the bean counters can capture value out of an old building that a new building does not provide.

"No one is going to move in an old ass building when they can get into something new."

How right you are. Look at every major city in the US where they have only new buildings because they knocked down all the old ones as no one wanted to move their business into "an old ass building".

[Detroit500]

This project will have major positive ramifications for that area. Makes me wonder however, what they will do with that streetscape across the street from the WBC -- you know the one with what once had Quiznos and other small businesses.

[R8RBOB]

"You being an old guy, you know, YOU KNOW that if it cheaper to build anew rather than renovate you and everyone who is watching the books is going to take the former and not the latter."

Not true and with historic tax credits, the bean counters can capture value out of an old building that a new building does not provide.

"No one is going to move in an old ass building when they can get into something new."

How right you are. Look at every major city in the US where they have only new buildings because they knocked down all the old ones as no one wanted to move their business into "an old ass building".

I am going to assume that you agree with me about old buildings and not trying to be funny.

I see you have jumped onto the tax credits bandwagon. You say that bean counters would jump at the oppportunity to occupy an old ass building because of the lovely tax credits that come with it. Okay, explain this to me. Why is it that Dan Gilbert, CEO of Quicken Loans is moving into the Compuware building instead of restoring one of Detroit's ruins? Surely, with the generous tax credits he could take his pick of buildings to move in. How about......the Book building. It's empty and it is screaming for renovation. What do you think?

[artds]

Do you think a facelift of the Book Tower would include removing that hideous fire escape? Either way, just giving that building a good power washing would be an amazing change.

I recall hearing that one of the renovation proposals that was floated a few years ago involved getting rid of the fire escape and converting one of the building's elevator shafts into a stairwell.

[PQZ]

Great insight all...

...But that begs the question... if Detroit doesn't take advantage of the available pots of tax credit monies, then others will. I mean if we don't restore another historic building in Detroit, then that will make more federal money available for other cities to restore their old buildings.

Ditto for state Historic Tax Credit money. If Detroit doesn't use it's sizeable fair share, the that will make more available for other towns such as Lansing, Grand Rapids, Flint, Saginaw, Ann Arbor, etc...

Either we pay for these credits in our own backyard.... or we're going to pay anyway in someone elses backyard....

If this logic is correct, I know which choice I'd rather make....

Unbelievable.

Your logic is not at all correct.

There is no "pot of money" for federal or state historic tax credits and there is no annual cap. If a project is completed in another city or another state, it has absolutely no bearing on whether there are sufficient tax credits available for other projects.

For someone who is such a strong advocate for historic preservation and who is so strident on this forum to have such a basic misunderstanding of tax credits is...well, you should be very embarassed.

[PQZ]

Jeebus people. Lets review reality.

1. Tax credits are not tax neutral. Tax credits used for projects in other cities or states reduce the money collected by state and federal governments. It results in lower revenues which results in diminshed services. The local property tax benefit must be weighed against the reduction in state and federal services. In the case of Detroit, almost every historic rehab gets an Obsolete Property Rehabilitation Abatement, which delays any new property taxes for a period of 12 years.

2. There is no formula for whether new build or rehab is more or less expensive. Period. End of discussion. Anyone who trys to make the statement there is proof that one or the other is more or less cost effective is a moron. You can't do it. There are dozens and dozens of variables that influence this. Rehab is often, but not always, more expensive than new build which is why the tax credits were created - as a way to equalize costs to achieve a policy goal of preservation. The exisitance of tax credits does not always make rehab a foregone conclusion.

[davewindsor]

I am going to assume that you agree with me about old buildings and not trying to be funny.

I see you have jumped onto the tax credits bandwagon. You say that bean counters would jump at the oppportunity to occupy an old ass building because of the lovely tax credits that come with it. Okay, explain this to me. Why is it that Dan Gilbert, CEO of Quicken Loans is moving into the Compuware building instead of restoring one of Detroit's ruins? Surely, with the generous tax credits he could take his pick of buildings to move in. How about......the Book building. It's empty and it is screaming for renovation. What do you think?

Easy, he's holding out for a better deal. Why commit yourself to construction or rehab when the market is showing better deals may pop up? There are plenty of vacantl buildings like 1001 Woodward that look like they're gonna go under which would be ripe for a fire sale price, subsidies and tax abatements. GM got their taxes waived for the RenCenter by not moving into the burbs. It gives companies a lot of leverage and bargaining power to not make it official. If 1001 went up on foreclosure, I'd bet the house that Gilbert would on it like a fly on sh-it.

[3WC]

PQZ is correct. Take his comments to the bank.

Here's my take on why financing is not available, under any scenario. First, conventional financing is out; that's a given. That leaves "investors" such as the City Pension funds and the State, through MSHDA; those sources would be fill-in infusions of loans to get the project off the ground and it's unlikely in this market there would be money for these kinds of deals. Also, of course, there are potential purchasers of tax credits. [[Disclaimer: I have been involved in one way or another in over a 100 commercial real estate deals. I have not however, been involved in a tax credit deal. So, I called upon a long time friend to fill in the blanks of what I didn't know about them. He does about 30 deals a year, almost all in affordable housing. I presume the tax credits on which those deals are based are identical to Historic Tax Credits.)

Heres the process: the developer comes up with a plan based of the availability of the credits and the possibility of selling them.

The tax credits are sold to corporations with the idea they will pay less taxes. [[We therefore, pay more.) Historically, a corp would be willing to pay $.95 of the dollar for the credits. Therefore, a corporation would buy $1 million of tax credits for $950,000. The credits are for 10 years and the corp gets to reduce its TAXES by $100,000 each year. The tax credit purchaser has to be convinced of 2 things. 1, that the project once contructed will be financially viable for 10 years; if it fails, the credit purchaser is hit with penalties, has to file revised returns and so forth, and will lose money. 2. The credit purchaser must be convinced thyat IT will be very profitable for the next 10 years; if it's not the credits are worthless.

Because there is such a lack of confidence in the economy, tax credit purchasers are willing to pay only $.50 to $.60 for a tax credit. Therefore, if the developer of the Book, for example, a tremendously risky project under any circumstances and one that would be almost impossible to sell in my opinion, a purchaser would only pay $500,000 for a $1 million tax credit. Therefore, the devloper of a $90 million project would have to find buyers for $180,000,000 of credits. [[The post-tax return to the purchaser would be about 15% or so, and in most people's minds the projects in which they might invest would have to be of much higher quality than the Book renovation to assure itself of that return. Further, nobody know how Obama's tax code revisions will impact their taxes at this point so there can be little tax planning for these kinds of deals.)

[[Banks used to be a big buyer of tax credits, in many cases to help satisfy there CRA obligations, but banks aren't making any money to speak of and are out of the market entirely. In fact, the whole tax cred market for all but the most prime deals [mostly in affordable housing] are dead and not expected to recover for years.)

Corporate profits are way down and expected by most to remain down for a long time. That takes a huge number of prospective purchasers out of the market.

A re-hab in the trendy, hot-spot areas of Harlem, where there is strong up-scale housing demand, might draw some credit purchasers. Not in Detroit, and certainly not the Book.

The original Book deal with Kimberly-Clark collapsed and K-C pulled out because they were convinced the B-C would never, even if re-habbed, remain viable for 10 years. They're smarter than they look.

I'll find my schematic of the 17 layer B-C financing plan possibly. However, I recall the the 2 largest credit purchasers were Chevron [[$22 million) and Miejers [[$14 million.) I can't imagine either is too happy at this point.

[Novine]

"I see you have jumped onto the tax credits bandwagon."

I wasn't jumping on the bandwagon. I've always pointing out that your assumption ignored the positive financial aspects of historic tax credits. Most of the previous comments on historic tax credits demonstrated a basic lack of understanding on how those work. PQZ and 3WC covered the basics of how those actually work.

I would take issue with this claim by PQZ:

"Tax credits used for projects in other cities or states reduce the money collected by state and federal governments. It results in lower revenues which results in diminshed services."

If you believe this, you would have to believe that the renovated buildings generates less in tax revenues than a vacant, unrenovated building. When does that happen? That's next to impossible. There's a big difference between a building that generates no or little tax revenue and an occupied building generating some tax revenue.

[3WC]

Novine: Tax credits do not generate tax revenue. Just the opposite is true. They diminish tax revenue [[as I explained above.)

Occupied [[and profitable) buildings do generate local real estate tax revenue and income tax revenue on earnings, but that is true regardless whether or not tax credits are involved in the financing.

[Lorax]

Now that we're getting into the weeds on historic tax credits, I have to reiterate what I said earlier, and correct a misnomer going around about them not being tax neutral.

They are, when the building in question has been off the tax rolls for years, maybe decades as is the case with many buildings in Detroit. You can't measure a cost to the system, when you are replacing a zero tax bill with 12 years of zero tax bills, thus making it tax neutral.

What some on this thread are working from is the bean counter's favorite act of tax "projection", which figures losses based on not accomplishing pre-determined tax goals. Corporations love to figure phantom "losses" the same way, such as the Big Three have done for years. Not making your projections, minus your collections, equals your losses. Convenient way to muddy the waters.

[3WC]

Lorax: I do not mean to be unnecessarily confrontational but your analysis above is nonsense. It's not possible to meaningful respond.

[Novine]

"Occupied [[and profitable) buildings do generate local real estate tax revenue and income tax revenue on earnings, but that is true regardless whether or not tax credits are involved in the financing."

Did you miss the part about vacant and unrenovated buildings? What kinds of tax revenues are those buildings generating? Very little. If tax credits, which reduce someone's tax liability, take a vacant, low or no tax generating building and allow it to be renovated, put back on the tax rolls or increase the taxable value of the building, there's a positive tax impact on the local, state and federal tax revenue through the various revenue streams [[property, income, etc.). This is the same argument made for the many industrial tax abatements given throughout the state. Local governments offer these abatements because they'll take a built and occupied property at 50% of the tax revenue versus a vacant and unoccupied property at 100% of the much lower tax revenue.

Historic tax credits do not negatively impact local property taxes. For state and federal income taxes, these are a drop in the bucket compared to the many popular tax credits/rebates that many of us take on our tax returns or that corporations enjoy on their tax returns.

[Lorax]

Then don't respond, since your position has no validity.

Projected tax revenues and collected revenues are two different figures, obviously. You can state on the record that building A should be assessed at X, and eventhough building A has been off the rolls for a decade, it's assessment is still figured into the projected revenues. The difference between these two figures is the shortfall which municipalities use as proof that the cost of services [[police, fire protection, sewers, etc) outweighs the revenue stream. These figures are then used as proof of deficit when these same municipialities dip into federal or state government supplements, or use these figures to raise taxes.

This sort of accounting is standard practice in many places, though works only in situations when 100% of projected revenues equal 100% of collected revenues, which is never the case.

Corporations do the same thing- I've always thought it a backward way of doing business, but then again, who am I to second guess the logic of Wall Street, eh?

There is NO cost to the tax system to extend historic credits to a building that is generating NO tax revenue. I don't know how more simply I can state it.

If anything, depending on where the building is located, Novine has it right. There can actually be a contributing factor, tax wise, as in the case of Michigan which has a state income tax, those working in that rehabbed building are paying state income taxes, city taxes in some cases, etc. The fact that for up to 12 years there is no property tax collection is non-detrimental, and is not costing the system one dime.

[g-dub]

It's good he's smart enough to go with apartments, this time. Too many developers have tried to push upscale condos trying to make quick money knowing that they'd have to move hell to sell them. It's time to get people in downtown on the rental front and allow them to move up the ladder as downtown improves because they are their in the first place.

I've never doubted apartments could work in the Tower, and I'm glad to see he's proposing apartments.

You're right. It's happening a lot in Chicago. Developers were drunk on the profits of condo developments a few years back, and by the time they got midway through some of their unfinished projects [[in the south Loop mainly) the economy tanked. And, since so many of them leaped to feed at the real estate trough at the same time, there is a glut of unsold condos downtown. Now, one by one, their projects are going rental. Some of the rental rates are a bit steep, but there tends to be at least a few nice amenities with a high rise residential building, and for the right resident it makes financial sense.

I know the Grinnell Lofts did the same thing not long ago, and hopefully it has turned out to be a good move on their part. The Book is a great building, and if the rents are reasonable they'll have enough volume to be able to keep that building alive and kicking with tenants. There should be more Ferchills with some vision doing their homework. It's an more of an urban generation among younger adults, and they're not often ready to be owners in their 20s or 30s, so as far as the urban living market goes, renting is where it's at. Condo ownership is still something of a novelty in Detroit, but there will always be a healthy market for renters.